Andhra HC (Pre-Telangana)
Syed Irfan Sulaiman vs M/S. New Amma Hospitals, Represented By ... on 15 November, 2016
Equivalent citations: AIR 2017 HYDERABAD 18, (2017) 3 ARBILR 204
Bench: Sanjay Kumar, Anis
THE HONBLE SRI JUSTICE SANJAY KUMAR AND THE HONBLE SMT. JUSTICE ANIS
CIVIL MISCELLANEOUS APPEAL NO.111 OF 2016
15-11-2016
Syed Irfan Sulaiman. .. Appellant
M/s. New Amma Hospitals, Represented by its authorized signatory and Managing
Partner,Sri Mohd. Faiaz Khan Shiridi Sai Nagar, Karmanghat,Saroornagar, Ranga
Reddy District. .. Respondent
Counsel for the Appellant: Sri G. Kalyan Chakravarthy
Counsel for the Respondent: Sri S.R. Sanjeev Kumar
<Gist:
>Head Note:
? CASES REFERRED:
1. 2015 (1) ALD 46 (DB)
2. 2011 (3) CHN 680
3. (2006) 7 SCC 275
4. AIR 2008 SC 1016
5. (2004) 3 SCC 155
6. (2011) 14 SCC 66
7. (2010) 1 SCC 562
8. (2009) 10 SCC 103
9. (2007) 3 SCC 686
THE HONBLE SRI JUSTICE SANJAY KUMAR
AND
THE HONBLE SMT. JUSTICE ANIS
CIVIL MISCELLANEOUS APPEAL NO.111 OF 2016
AND
CIVIL REVISION PETITION NO.953 OF 2016
C O M M O N J U D G E M E N T
(Per Honble Sri Justice Sanjay Kumar)
O.S.No.1142 of 2015 on the file of the learned II Additional
Senior Civil Judge, Ranga Reddy District at L.B.Nagar, was filed by
M/s. New Amma Hospitals, a partnership firm, for a perpetual
injunction restraining Syed Irfan Sulaiman, the defendant, from
entering into the suit schedule property and to restrain him from
interfering with the day to day affairs and management of the
hospital. The suit schedule property is a building comprising ground
plus four upper floors situated at Plot No.6, Survey No.59 part,
Hastinapuram Central, Shirdi Sai Nagar, Karmanghat Village,
Saroornagar Mandal, Ranga Reddy District, wherein the hospital is
housed and operating.
Syed Irfan Sulaiman, the defendant in the suit, filed I.A.No.796
of 2015 therein under Section 8 of the Arbitration and Conciliation
Act, 1996 (for brevity, the Act of 1996) seeking reference of the
dispute to arbitration in terms of the arbitration clause contained in
the partnership deed. He also filed I.A.No.797 of 2015 in the suit
under Order 7 Rule 11 CPC seeking rejection of the plaint. By
separate orders dated 07.12.2015, the trial Court dismissed both
I.As. Aggrieved thereby, he is before this Court. C.M.A.No.111 of
2016, an appeal under Section 37 of the Act of 1996, arises out of the
order passed in I.A.No.796 of 2015 in O.S.No.1142 of 2015, while
C.R.P.No.953 of 2016, under Article 227 of the Constitution, pertains
to the order passed in I.A.No.797 of 2015 in O.S.No.1142 of 2015.
Heard Sri G.Kalyan Chakravarthy, learned counsel for the
appellant/petitioner, the defendant in the suit, and Sri S.R.Sanjeev
Kumar, learned counsel for the respondent in both cases, the plaintiff
in the suit.
Parties shall be referred to hereinafter as arrayed in the suit.
The plaint averments in O.S.No.1142 of 2015 read as under:
The plaintiff is a registered partnership firm bearing Registration
No.680/2015 on the file of the Registrar of Firms, Ranga Reddy East.
The original registered partnership deed is dated 26.02.2015. The
plaintiff firm established a hospital with the sole intention of serving
needy patients at reasonable charges. However, as financial
difficulties were faced in the running of the hospital, the partners of
the plaintiff firm agreed to induct a new partner, who would pay a
sum of Rs.1,50,00,000/- to help them overcome problems in the
operation of the hospital. The defendant was acquainted with the
partners of the plaintiff firm and came forward with the proposal that
he would invest monies so as to resolve the problems faced by the
hospital. After discussions and negotiations, the partners of the
plaintiff firm and the defendant arrived at a proposal in principle,
whereby the defendant was to be inducted as a partner with a 30%
share. Upon this understanding, retirement-cum-reconstitution of
partnership deed dated 13.04.2015 was reduced into writing, wherein
the partners of the plaintiff firm and the defendant affixed their
signatures. The defendant agreed to pay a sum of Rs.1,50,00,000/-
into the account of the hospital and thereafter, the deed was to be
submitted before the Registrar of Firms, Ranga Reddy East. While
so, the defendant took the deed of partnership along with him on the
ground that it was required to be shown to the bank manager for
drawal of the amount. The defendant promised to pay the cash by
the evening but failed to turn up on the said date and on consecutive
dates also. The plaintiff firm therefore alleged that the defendant did
not fulfill his obligation as per his promise. The plaintiff firm further
alleged that the original of this partnership deed, which was not
registered, was in the custody of the defendant and with a malafide
intention and without the consent of the partners of the plaintiff firm,
he submitted it before the Registrar of Firms without their knowledge.
The partners of the plaintiff firm lodged a complaint before the
Registrar on 17.04.2015 requesting him not to register or entertain
the said partnership deed. The plaintiff firm further asserted that in
the light of the objections raised by the partners, the Registrar of
Firms did not register the partnership deed dated 13.04.2015 and
issued notice to all concerned. The defendant however failed to
appear but started visiting the hospital along with anti-social
elements and was creating a nuisance. In this regard, the plaintiff
firm asserted that on 04.08.2015 the defendant came to the hospital
and started to interfere with the management of the hospital by
threatening the hospital staff, patients and the partners of the firm.
The plaintiff firm stated that it lodged a complaint on 06.08.2015
with Meerpet Police Station, leading to registration of Crime No.542 of
2015. The defendant again trespassed into the premises of the
hospital on 23.08.2015 with his henchmen. It was on the strength of
these averments that the plaintiff firm sought a perpetual injunction.
In his affidavit filed in support of I.A.No.796 of 2015 in
O.S.No.1142 of 2015, the defendant pointed out that the partners of
the plaintiff firm admitted execution of the partnership deed and their
signatures therein, whereby he was inducted as a partner in the firm.
He pointed out that the said agreement contained an arbitration
clause and therefore, any dispute in relation to the said agreement
would fall within the ambit of the arbitration clause. He asserted
that the civil Court would have no jurisdiction in such a matter
except for entertaining a petition under Section 9 of the Act of 1996.
He pointed out that Section 8 of the Act of 1996 contemplated that
where the jurisdiction of the civil Court is invoked and it is brought to
the notice of the said Court that the parties have agreed to resort to
arbitration for their dispute resolution, the civil Court should refer
the matter to arbitration upon an appropriate petition being made,
and accordingly prayed for such reference. Similar was his stand in
the affidavit filed in support of I.A.No.797 of 2015 filed in the suit.
He asserted therein that when there was an arbitration clause which
required to be acted upon, the plaintiff firm could not invoke the
jurisdiction of the civil Court for resolution of any dispute covered by
such a clause. He further pointed out that as per the provisions of
the Specific Relief Act, 1963, a suit for an injunction could not be
maintained when an equally efficacious remedy was available to the
plaintiff and prayed that the trial Court should dismiss the suit
under Order 7 Rule 11 CPC as being barred by law.
The plaintiff firm contested the I.A.s stating that the defendant
was not a partner of the firm as the deed was not registered by the
Registrar of Firms, Ranga Reddy East, and therefore, the arbitration
clause contained in the said deed could not be invoked. The plaintiff
firm admitted the execution of the reconstitution deed whereby the
defendant was inducted as a partner but asserted that it was subject
to the condition that he would pay a sum of Rs.1,50,00,000/- which
he failed to do. The plaintiff firm therefore asserted that the
defendant had no locus to invoke Section 8 of the Act of 1996 and the
trial Court was fully empowered to entertain the suit.
Perusal of the order passed by the trial Court in I.A.No.796 of
2015 filed in the suit reflects that the trial Court was of the opinion
that the plaintiff firm was not seeking adjudication of a dispute
referable to the reconstitution deed, whereby it could be referred to
arbitration. According to the trial Court, the issue raised by the
plaintiff firm was with regard to the alleged fraud committed by the
defendant in relation to payment of Rs.1,50,00,000/- and in trying to
get the reconstitution deed registered behind the back of the partners
of the plaintiff firm. The trial Court therefore concluded that the
petition under Section 8 of the Act of 1996 was not maintainable and
dismissed the I.A. Similar was the reasoning of the trial Court in the
order passed in I.A.No.797 of 2015 in O.S.No.1142 of 2015 which
was dismissed on the same date.
It is an admitted fact that the plaintiff firm was registered
under the original partnership deed dated 26.02.2015 and was
allotted Registration No.680/2015 by the Registrar of Firms, Ranga
Reddy East. The plaint referred to the reconstitution deed, which is
the basis for this litigation, as a document of the date 13.04.2015.
The defendant, in turn, also referred to the same date in the context
of this document in his affidavits filed in support of the I.A.s. The
original of this document seems to have been submitted by the
defendant to the Registrar of Firms, Ranga Reddy East, and appears
to be still in his custody. That is perhaps the reason why the date
was wrongly mentioned by both parties. However, a notarized copy of
the said document was thereafter placed on record by the defendant
and demonstrates that it was executed on 09.04.2015. Anyhow, the
discrepancy in the dates is of no real significance. Perusal of this
document indicates that Mohammed Faiaz Khan, Mohammed Amjad
Khan and Mandadi Srinivas Reddy, styling themselves as the
continuing partners, along with Syed Irfan Sulaiman, the defendant,
shown as the incoming partner, and Putta Venkata Venu Gopal,
shown as the outgoing partner, were the executants thereof. All five
of them affixed their signatures on each page of the document. The
preamble of this document reads thus:
And Whereas, the incoming partner Syed Irfan
Sulaiman, on the request of the continues partnes the
incoming partner expressed his desire to join this Partnership
Business which was already formed in the name and style of
M/s NEW AMMA HOSPITAL, in the Premises bearing
Municipal No.8-7-91/15/H/6/NR and 8-7-91/15/H/6,
situated at Hasthinapuram Central, Shirdisainagar,
Karmanghat Village, Saroor Nagar Mandal, Ranga Reddy Dist.
T.S. that the registered office of the Firm at 3-15-23, Bahar-
2/12, Sahara States, Mansoorabad Village, L.B.Nagar
Munhicipality, Saroor Nagar Mandal, Ranga Reddy Dist. T.S.
that the said Firm is registered under section 59 of the Indian
Partnership Act, 1932, vide Acknowledgement of Registration of
Firm No.680 of 2015, at Ranga Reddy (East), dated: 02-03-
2015, registered at Registrar of Firms R.R. Dist. East. That the
Incoming Partner/Second Party agreed to join the business of
Continuing Party on the following terms and conditions:-
And the outgoing partner PUTTA VENKATA VENU
GOPAL, expressed his desire for retire from this Partnership
Business on and from 09-04-2015, to which the said
continuing partner agreed on the same and the said outgoing
partner is retired on 09-04-2015.
Significantly, the terms and conditions stipulated in the deed
do not even mention the requirement of the defendant having to pay
a sum of Rs.1,50,00,000/-, let alone that it was a condition
precedent for his admission as a partner. Clause 14 relates to
disputes and reads as under:
14. DISPUTES: All disputes and questions,
interpretations arising out of the partnership between the
partners during the continuance of the partnership or
thereafter, may be referred to the arbitration of two arbitrators
and in case of their disagreement to an umpire appointed by
the said arbitrators, whose decisions shall be fine, conclusive
and binding upon the parties.
The deed ended with the following recital:
IN WITNESS WHEREOF WE THE PARTNERS OF THIS
DEED DO SOLEMNLY DECLARE THE TERMS AND
CONDITIONS STIPULATED IN THIS DEED ARE AGREED BY
US AND IN TOKEN OF OUR ACCEPTANCE, WE SIGN THIS
DEED IN THE PRESENCE OF THE WITNESSES ATTESTING
HEREUNDER.
All the five executants of the deed affixed their signatures
under the above recital in the presence of two witnesses, who also
signed the document.
It is in the context of this reconstitution deed that both parties
are now at logger heads. Having admitted the execution of this
document, the plaintiff firm now asserts that as the defendant failed
to pay the sum of Rs.1,50,00,000/-, he should be injuncted from
interfering with the plaintiff firm and operation of the hospital.
Per contra, the defendant asserts that in the light of the dispute
resolution mechanism contemplated under Clause 14 of the
reconstitution deed, the plaintiff firm cannot maintain an
independent suit and that recourse must be taken to arbitration
proceedings in terms of the said clause.
Sri S.R.Sanjeev Kumar, learned counsel, would contend that
the petition filed by the defendant was defective as per Section 8 of
the Act of 1996 and warranted dismissal at the threshold. Section 8
is extracted hereunder:
8. Power to refer parties to arbitration where there is an
arbitration agreement:--
(1) A judicial authority before which an action is brought in
a matter which is the subject of an arbitration agreement
shall, if a party so applies not later than when
submitting his first statement on the substance of the
dispute, refer the parties to arbitration.
(2) The application referred to in sub-section (1) shall not be
entertained unless it is accompanied by the original
arbitration agreement or a duly certified copy thereof.
(3) Notwithstanding that an application has been made
under sub-section (1) and that the issue is pending
before the judicial authority, an arbitration may be
commenced or continued and an arbitral award made.
It is the contention of the learned counsel that as the petition
was filed by the defendant without the original reconstitution deed or
a certified copy thereof, dismissal of the petition is inevitable in terms
of Section 8(2) of the Act of 1996.
Per contra, Sri G.Kalyan Chakravarthy, learned counsel, would
state that once the plaintiff firm admitted execution of the subject
document, filing of the original or a certified copy thereof pales into
insignificance and therefore, the petition filed under Section 8 of the
Act of 1996 cannot be rejected on this technical ground. He would
rely upon the Division Bench judgment of this Court in ASIAN
SECURITIES AND ESTATES LIMITED V/s. MS. NAUSHEEN RIYAZ
AND OTHERS . Therein, the Division Bench referred to the
judgment of the Calcutta High Court in RAJEEV MAHESHWARI V/s.
INDU KOCHER , which held to the effect that once the existence of
the arbitration agreement stood admitted, having been referred to in
the plaint itself, insistence upon filing of the original or a certified
copy thereof in terms of Section 8(2) of the Act of 1996 would become
redundant. On facts, the Division Bench found that the plaintiffs in
that case had admitted execution of the document containing the
arbitration clause and accordingly held that the requirement under
Section 8(2) of the Act of 1996 was not imperative. The Division
Bench opined that the issue would be with regard to existence of an
arbitration clause and once the plaintiff admitted execution of the
agreement containing such a clause, there would be no need for the
defendant to file the original or a certified copy of such agreement
along with the application under Section 8 of the Act of 1996.
Significant to note, in RASHTRIYA ISPAT NIGAM LTD. AND
ANOTHER V/s. VERMA TRANSPORT CO. , the question arose as to
whether an application filed under Section 8 of the Act of 1996 would
be maintainable if it is not accompanied by the original arbitration
agreement or a duly certified copy thereof. The Supreme Court
observed that once existence of such an agreement stood admitted
and the dispute, which was the subject matter of the case, arose out
of such an agreement and fell within the ambit of the arbitration
clause contained therein, the judicial authority is statutorily
mandated to refer the case to arbitration.
ATUL SINGH V/s. SUNIL KUMAR SINGH is distinguishable on
facts from the aforestated two decisions as the arbitration agreement
itself was denied but no document was filed with the suit. In such a
case, the requirement under Section 8(2) of the Act of 1996 was held
to be mandatory.
In the present case, perusal of the plaint in O.S.No.1142 of
2015 demonstrates beyond doubt that execution of the reconstitution
deed dated 09.04.2015, albeit wrongly shown with the date
13.04.2015, is admitted. Once execution of this document is
admitted and it contains an arbitration clause, as set out in Clause
14, production of the original or a certified copy of the said
reconstitution deed is wholly unnecessary. No doubt, the notarized
copy of the reconstitution deed produced by the defendant would not
qualify either as the original or as a certified copy. However, we need
not labour on this aspect as Section 8(2) of the Act of 1996 would not
come into play at all, as the plaintiff firm admitted execution of the
reconstitution deed containing the arbitration clause.
The next contention is that this document is yet to be
registered with the Registrar of Firms, Ranga Reddy East. According
to the plaintiff firm this fact would, in itself, be sufficient to hold that
the defendant is not a partner of the firm and therefore, he cannot
take recourse to the arbitration clause contained therein.
Chapter VII of the Indian Partnership Act, 1932 (for brevity,
the Act of 1932) deals with registration of firms. Section 58 therein
provides for an application being made for registration of the firm.
Such an application is to be sent by post or delivered to the Registrar
of the area in which any place of business of the firm is situated or
proposed to be situated. Details, in a statement to be made in the
prescribed form signed by all partners, accompanied by the
prescribed fee are also to be submitted. Upon verification of such
application to ensure compliance with the provisions of Section 58,
the Registrar is empowered under Section 59 to record the necessary
entry in the Register of Firms and file the said statement. Recording
of changes in and dissolution of a registered firm is provided for
under Section 63. This provision reads to the effect that when a
change occurs in the constitution of a registered firm, any incoming
or outgoing partner may give notice to the Registrar of such change,
specifying the date thereof, and the Registrar shall make a record of
the notice in the entry relating to the said firm in the Register of
Firms. Section 69 deals with the effect of non-registration of a firm.
It is however significant to note that in the present case, the plaintiff
firm was already registered on the strength of the original partnership
dated 26.02.2015 and was allotted Registration No.680/2015 by the
Registrar of Firms, Ranga Reddy East. This is therefore not a case of
non-registration of the firm.
However, once a change is effected in the constitution of a
registered firm, the necessary entry has to be made by the Registrar
of Firms in terms of Section 63. In this regard, Section 69(1) would
assume significance. It is an admitted fact that even as on date, the
Registrar of Firms has not acted upon the application made by the
defendant to include his name as a partner of the plaintiff firm in the
Register of Firms. Consequently, as his name does not figure as a
partner of the plaintiff firm in the Register of Firms, the defendant
cannot maintain a suit against the said firm to enforce his rights
arising from the reconstitution deed. To this limited extent, Section
69(1) would have application as the plaintiff firm still continues to be
a registered firm, notwithstanding the failure to effect changes in its
constitution by the Registrar of Firms as per the statutory mandate.
Pertinent to note, the reconstitution deed dated 09.04.2015 would
not be registered but only the changes in the constitution effected
thereunder would be taken note of by the Registrar in terms of
Section 63 for making suitable entries in the Register of Firms.
The only right of a partner, who is not shown as a partner of
the registered firm in the Register of Firms, would be under Section
69(3) to the extent that he can seek dissolution of the firm or
rendition of accounts or realization of property of the dissolved firm.
This right can also be enforced through arbitration proceedings. In
FIRM ASHOK TRADERS AND ANOTHER V/s. GURUMUKH DAS
SALUJA AND OTHERS , while holding to this effect, the Supreme
Court observed that under the scheme of the Act of 1996, an
arbitration clause is separable from other clauses in a partnership
deed and constitutes an agreement by itself.
As matters stand, the defendant, as he is not shown to be a
partner of the registered plaintiff firm in the Register of Firms
maintained by the Registrar of Firms, Ranga Reddy East, is barred
from filing a suit to enforce his rights arising under the said contract.
If he is now denied the opportunity of at least taking recourse to the
arbitration clause contained in the said reconstitution deed, he would
be practically left with no remedy in law to seek enforcement of his
rights thereunder. Hypothetically, had the defendant paid any
amount to be inducted as a partner of the firm and is now sought to
be excluded, he would neither be in a position to file a suit for
recovery of such sum and if the argument of Sri S.R.Sanjeev Kumar,
learned counsel, is to be accepted, he cannot even take recourse to
arbitration proceedings by virtue of Clause 14 of the reconstitution
deed, as he is not recognized as a partner. However, as pointed out
in the precedent cited above, the arbitration clause is an agreement
in itself and would stand apart from the other clauses of the
document in which it finds place.
Be it noted, Section 2(1)(b) of the Act of 1996 defines the term
arbitration agreement to mean an agreement referred in Section 7.
Section 7 reads as under:
7. Arbitration Agreement:--
(1) In this part, arbitration agreement means an agreement by
the parties to submit to arbitration all or certain disputes
which have arisen or which may arise between them in
respect of a defined legal relationship, whether contractual
or not.
(2) An arbitration agreement may be in the form of an
arbitration clause in a contract or in the form of a separate
agreement.
(3) An arbitration agreement shall be in writing.
(4) An arbitration agreement is in writing if it is contained in
(a) a document signed by the parties;
(b) an exchange of letters, telex, telegrams or other means of
telecommunication which provide a record of the
agreement; or
(c) an exchange of statements of claim and defence in which
the existence of the agreement is alleged by one party
and not denied by the other.
(5) The reference in a contract to a document containing an
arbitration clause constitutes an arbitration agreement if
the contract is in writing and the reference is such as to
make that arbitration clause part of the contract.
Therefore, neither a specific form nor registration is mandated
to give effect to an arbitration clause as long as it falls within the
ambit of the aforestated statutory provision. That is the reason why
arbitration clauses even in compulsorily registrable documents have
been given effect to and have been acted upon. (SMS TEA ESTATES
PRIVATE LIMITED V/s. CHANDMARI TEA COMPANY PRIVATE
LIMITED and GEO-GROUP COMMUNICATIONS INC. V/s. IOL
BROADBAND LIMITED ). There can therefore be no dispute as to the
right of the defendant to take recourse to arbitration proceedings in
terms of Clause 14 of the reconstitution deed.
The next issue for consideration is whether the suit claim is
relatable to Clause 14, whereby arbitration can be sought for its
resolution. In this regard, reference may be made to BRANCH
MANAGER, MAGMA LEASING AND FINANCE LIMITED AND
ANOTHER V/s. POTLURI MADHAVILATA AND ANOTHER , wherein
the Supreme Court observed that if there exists an arbitration
agreement but an action is brought to the Court by one party to such
arbitration agreement against the other and the subject matter of the
suit is the same as the subject matter of the arbitration agreement,
Section 8 is a legislative command to the Court to refer the parties to
arbitration. The Supreme Court held that once the conditions of
Section 8 are fulfilled, no option is left to the Court and it must refer
the parties to arbitration.
As to the ambit of the word dispute, reference may be made to
AGRI GOLD EXIMS LTD. V/s. SRI LAKSHMI KNITS & WOVENS
AND OTHERS , wherein the Supreme Court held that the term
dispute must be given its general meaning under the Act of 1996.
Reference was made to P.Ramanatha Aiyars Advanced Law Lexicon,
3rd Edition, wherein it was stated as under:
In the context of an arbitration the words disputes and
differences should be given their ordinary meanings. Because one
man could be said to be indisputably right and the other indisputably
wrong, that did not necessarily mean that there had never been any
dispute between them....
In the present case, as already pointed out supra, the
reconstitution deed dated 09.04.2015 did not even refer to the fact
that the defendant had to pay a sum of Rs.1,50,00,000/-. It
straightaway provided for his induction as a partner in the plaintiff
firm with a share of 30%. In consequence of his being inducted as a
partner, certain rights were created in his favour under the terms
and conditions stipulated in the deed. The place of business in terms
of this document is the suit schedule property in O.S.No.1142 of
2015. The defendant was given the right to open a bank account
with the consent of the other partners, apart from participating in the
profit/loss sharing. He was, in fact, given the second highest share
of 30% after the 50% share of Mohammed Faiaz Khan. While these
were the recitals of the reconstitution deed, the plaintiff firm seeks a
perpetual injunction restraining the defendant from entering into the
suit schedule property and interfering with the day to day affairs and
management of the hospital. The suit prayer was thus in direct
contrast to the rights created in favour of the defendant under the
reconstitution deed. The dispute therefore fell squarely within the
four corners of the said reconstitution deed. Justification for the suit
prayer against the defendant was the plaintiff firms assertion that he
had failed to pay the promised amount of Rs.1,50,00,000/-.
However, that was not the core dispute in the suit but only the
plaintiff firms justification. Unfortunately, the trial Court
understood this in the wrong perspective and opined that the suit
dispute was about the alleged fraud in non-payment of this amount
and presentation of the reconstitution deed before the Registrar of
Firms. This understanding of the trial Court is wholly incorrect as
the plaintiff firm, by way of the suit claim, wanted to negate the
rights created in favour of the defendant under the reconstitution
deed dated 09.04.2015 and therefore, the dispute was squarely
covered by the reconstitution deed, attracting Clause 14 thereof
which provided for dispute resolution through arbitration. The trial
Court therefore ought not to have dismissed the petition filed by the
defendant under Section 8 of the Act of 1996. The said petition was
maintainable, notwithstanding the failure on the part of the
defendant to produce the original/certified copy of the reconstitution
deed containing the arbitration clause in as much as execution of the
said agreement was admitted by the plaintiff firm. The factum of the
defendant not having been entered as a partner of the plaintiff firm in
the Register of Firms maintained by the Registrar of Firms only had
the effect of attracting Section 69(1) of the Act of 1932 and did not
have any impact upon the maintainability of the petition filed by him
under Section 8 of the Act of 1996. The dispute which formed the
subject matter of the suit related to enforcement or rather, prevention
of enforcement of the rights created under the reconstitution deed
dated 09.04.2015 and the excuse offered by the plaintiff firm for
denying such enforcement did not by itself become a dispute in its
own right.
The trial Court therefore ought to have accepted the petition
filed under Section 8 of the Act of 1996 and referred the parties to
arbitration. The order dated 07.12.2005 holding to the contrary in
I.A.No.796 of 2015 in O.S.No.1142 of 2015 is accordingly set aside
and the trial Court is directed to take steps accordingly.
As this Court already found that the petition filed by the
defendant under Section 8 of the Act of 1996 merited consideration
and as the said provision mandates in no uncertain terms that the
judicial authority concerned shall refer the parties to arbitration, as
has been emphasized by the Supreme Court in POTLURI
MADHAVILATA8, the trial Court erred in rejecting the petition filed by
the defendant under Order 7 Rule 11 CPC. Once the suit was barred
in terms of Section 8 of the Act of 1996, Order 7 Rule 11(d) CPC
clearly applied and the trial Court was statutorily barred from
proceeding with the said suit. The understanding of the trial Court
that this exercise should be undertaken only on the strength of the
plaint averments is shortsighted. No doubt, for the purpose of Order
7 Rule 11(a) CPC, the trial Court would look only into the plaint
averments to determine as to whether a cause of action has been
established. The same approach may not be applicable when Order 7
Rule 11(d) CPC is pressed into service as it would be for the
defendant to demonstrate before the Court as to how the suit is
barred under any law. Any material placed before the trial Court by
the defendant, including a petition under Section 8 of the Act of
1996, necessarily warranted examination by the trial Court.
In that view of the matter, the trial Court erred in rejecting the
petition filed by the defendant under Order 7 Rule 11 CPC. Once the
right of the defendant to take recourse to Section 8 of the Act of 1996
is upheld, law mandates that the judicial authority, before which a
proceeding has been brought by one of the parties to the arbitration
agreement, must necessarily non-suit such party and refer the case
to arbitration. Therefore, the order passed by the trial Court in
I.A.No.797 of 2015 in O.S.No.1142 of 2015 is also set aside. The trial
Court shall take steps accordingly.
C.M.A.No.111 of 2016 and C.R.P.No.953 of 2016 are allowed.
In the circumstances, there shall be no order as to costs.
___________________________
SANJAY KUMAR, J
_____________________ ANIS, J 15th NOVEMBER, 2016